Is The Tide Turning as Some Firms Opt to Bring Manufacturing Back to the United States?

According to the Wall Street Journal, about 14% of U.S. companies surveyed by a Massachusetts Institute of Technology professor definitely plan to move some of their manufacturing back home—the latest sign of growing interest among executives in a strategy known as “reshoring.”

MIT Engineering Professor, David Simchi-Levi, surveyed 108 U.S.-based manufacturing companies with multinational operations over the past two months. The comapnies range in size from annual sales of about $20 million to more than $25 billion, with most over $1 billion.

Among the main reasons cited for re-shoring:

1. A desire to get products to market faster and respond rapidly to customer orders;
2. Savings from reduced transportation and warehousing;
3. Improved quality and protection of intellectual property.

About 21% listed “pressure to increase U.S. jobs,” as companies feel both political and market heat to show they make things in the U.S.

In February, Boston Consulting Group surveyed 106 companies with annual sales of $1 billion or more and found that 37% planned to re-shore or were “actively considering” it. The MIT survey is more precise in singling out those with definite plans. When asked the broader question of whether they were considering a move to re-shore, the MIT study found that 33% of those surveyed said “yes”.

Google Inc. announced that its new Nexus Q music and video player will be manufactured in the U.S., something that rarely occurs in consumer electronics. Scores of other companies including Caterpillar Inc., General Electric Co. and Ford Motor Co. in the past two years have announced plans to make in the U.S. some products they previously brought in from overseas.

GE’s website includes an “American Jobs Map” providing details of 14,500 new jobs announced by the company since 2009.

Some foreign companies also have been stepping up their U.S. manufacturing. The U.S. unit of Japan’s Yaskawa Electric Corp. recently decided to make a new line of electrical motor controls for heating and ventilation equipment at its plant in Buffalo Grove, Ill., rather than in China. Craig Espevik, a vice president at Yaskawa, said the cost of the parts will be about 10% higher, even after shipping costs are included, mainly because of higher wages in the U.S. But producing the parts here will allow for quicker deliveries to customers, lower inventories and more customization.

In April, U.S. Sen. Debbie Stabenow, a Democrat from Michigan, announced legislation dubbed the “Bring Jobs Home Act”. The bill would provide tax breaks to help companies cover the cost of moving production back to the U.S. and ban tax deductions for the expenses of moving operations abroad.

MIT’s Dr. Simchi-Levi said lower U.S. corporate taxes would help bring more manufacturing back. He said it wasn’t yet clear whether the re-shoring trend will result in a large amount of U.S. job growth. Some of the jobs will be low-paid assembly work, he noted.
Even so, he called re-shoring an encouraging development: “Once you start this process, there is no telling where it ends.”

The complete results of the MIT survey are due to be presented at a Forum for Supply Chain Innovation conference July 25 at the university in Cambridge, Mass.